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Charlestown Chemical

Products, Inc.
Muriatic acid purchasing case
B2B (Section A)
Group :
(11DM-005) Abhinav
Mishra
(11DM-007) Parvez
Agaskar
(11DM-014) Akhil Gupta

Charlestown Chemical Products, Inc


Company Background
- Based in New Orleans,
Louisiana
- Chemical plant in Tulsa
(Oklahoma)
- Director of Purchasing
Mr.
William Todd
- 30 plants and 7000 employees
Business
- Sales revenue US$ 600 million
in 1974
- PAT of US$ 30 million
- US and international market

Product
Commodity
chemical,
chemical intermediaries and
specialties
- 700 products
- 40% of sales consists of
commodity chemical
Muriatic Acid
- 20 Baume (31.45% HCL)
- Stringent specification (35
APHA, Fe 1 ppm max, HCL 31.45
32.56%, SO4 50 ppm max, As
0.2 ppm, Pb 1 ppm
- Tulsa plant uses for purification
of
NaCl
solution
fed
to
electrolytic cells

Puritan Chemicals
-

Company Background
Sales revenue US$ 4.5 billion 1974
PAT of US$ 197.5 million
74,000 employees
60 domestic and overseas plants

Procurement of Muriatic Acid


- Need to purchase as Charlestown
discontinued in house production in
Nov 1973
- Mr. Todd negotiated a contract with
Puritan for 1974 for a price of US$
48.75 per Ton
- Buyers requirement of 4,000 tons
and can be exceeded with consent
of Seller

Charlestown Chemical Puritan


Relationship
- Lot of business since past 4 years
(between 1970 to 1974)
- Charlestown purchases amounting
to US$ 2.118 million to US$ 4.495
- Puritan purchases amounting to
US$ 4.09 million to US$ 6.193 million
Shipment
from
Springfield
(Missouri) ~635 km or Dallas (Texas)
~413 km in Tank Trucks
- Price can be revised on quarterly
basis and written notice within 15
days of quarter
- Buyer can object the price increase
by written notice
- If a bonafide offer from alternate
US based source is produced which
the seller cannot meet then both are
free from contract

Case Background
On
Jun
15th,
Puritan
revised price from US$
48.75 to US$ 66.25 per
ton effective from July 1,
1975

Jun 22nd, Meeting with


Puritan:
- Mr. Todd mention about
alternate option
- Effect on business from
Puritan
- Loose term buyers
requirements*

Mr. Todd had to reject this


hike and he had to get a
backup*
offer
as
a
replacement to Puritan

Mr. Todd had following


concerns regarding offer:
1. Quality 2. Tank Car
3. Must take condition
First shipment with in 4
days of signing contract*

On Jun 17th, Mr. Todd


invites offer from Lee
Chemical
Company
(jobber* for Muriatic acid)

On Jun 21st, Lee Chemical


offered price of US$ 55.50
to be delivered by Tank
Car on terms of 3,000
tons as min quantity
Lee also submitted trial
sample which cleared the
quality test*

Points to be
considered for
sourcing :
- High transportation
cost for Acid
- Nearest supplier quoted
US$
75
which
was
competitive if acid was
transported by Barge
- Charlestown always
looked for long term and
settled relationship
- If Tank Cars are used
for transport then the
modification
required
would cost US$ 2.50 per
ton
plus
switching
problem
required
for
other liquid inputs
- Tank Cars schedule was
inflexible

Case Problem
On Jun 23rd , Mr. Todd raised
quality and consistency concerns
as producer was still unknown and
delivery by tank Car
Counter price of US$ 47.50 per
ton along with problems of terms

Lee reduces offer price to US$


52.50 per ton only with no change
in terms and proposal for tank
truck order for testing purpose
which arrived on 28th June

On July 1st , Puritan revokes the


price revision

Lees Sample found to be


good on Aug 10. Puritan
wanted contract to be signed
on
entire
requirement
basis* for the year 1976 with
in 3 days of offer at US$48.75.
Now Todd has to weigh both
the suppliers as he could not
reject Lee forefront & also a
long term solution.
Mr. Todd memo to plant manager:
1. To test the Tank truck sample
2.
Credit for Puritan price
rescission given to Lees offer and
giving them edge for 1976
negotiations

Plant Manager suggestion to drop


Jobber :
1. Puritan is more reliable
2. Must take condition of 3000
tons
3. Lees supply wont be sufficient

Case Argument
Puritan Chemicals
Reliable
supplier
and
always
Charlestown Chemicals first choice
Price rescission to US$ 48.75
Delivery with Tank Trucks
Want to sign contract for 1976
entire requirement basis at US$
48.75 per ton
Increase in dollar volume purchase
by US$ 0.5 million in 1976
Points to be considered
Provision of price revision in
contract
Loose terms about requirement
Need to develop an alternate
source and not just recognize it
Further
negotiation
for
1976
contract
as
Charlestown
has
backup offer for an eligible vendor
Puritan is a customer
Puritan would be first choice if price
and terms are negotiated

Lee Chemical Company


(Jobber)
A jobber supposedly buying from
National Chemical Corporation
(St. Louis, ~635 Km)
Initial
hesitation
about
consistency in quality*
Capacity might not be enough to
fulfill the requirement
Delivery by

Tank Car : $US 48.75 per ton


Tank Truck : $US 51.25 per ton

Points to be considered
High on price
Must buy conditions dropped
but still doubt about capacity
National Chemicals can be a
prospective vendor
Lee Chemicals can be used to
negotiate very low prices from
Puritan and vice versa

What Charlestown Chemicals can


do?
- It should not sign contract at currently mentioned terms
- Make Puritan drop prices using Lees offer and sign a contract (100%
sourcing from Puritan)
- Negotiate good pricing from Lee for Tank trucks which could match
with Puritan and part purchase from Lee (Signing of contracts with
both respectively)
- Puritan would be a main supplier but Lee is used just to develop a
backup
- National Chemicals can be developed as a vendor (if no conflict exist
with Lee)
- If it is Lees source then direct purchase from source would reduce
cost
- Then it will be a competition between Puritan and National Chemicals
- Purchase from Lee would be a rare case unless Puritan fails to meet the
prices which would be a rare case but it is possible if terms with Puritan
could not be agreed upon
- Tank Car option ruled out as it would need further development of plant
facility

THANK YOU